House Swaps

It is certainly legal for you and the other house owner to exchange homes. Each of you will enjoy the benefits of moving house without the problems that a chain can bring. You may also possibly save money on estate agents fees. The transaction will largely follow the same conveyancing procedures as would apply in a standard sale. However, there are some pitfalls to avoid and one or two points to bear in mind. It is essential for both you and those with who you are swapping to be happy that your houses are of an equivalent value. But perhaps you need a bigger home and are trading up whilst they want a smaller house and are trading down. Or vice versa. Whatever the scenario you need to get both homes valued.

This is so that you can agree the amount of the balancing payment that the owner of the less expensive house will pay to the owner of the more expensive house when the properties are swapped.

You must also carefully consider how you and the owners of the other house became aware you were each looking to move. Has either party previously appointed an estate agent to market their property? If you found out about the other house from an estate agent representing the existing owners, then their contract with the estate agent will undoubtedly require them to pay the estate agent's fee. However, if your estate agent did not introduce your house to the eventual buyers (or if you have not employed an estate agent) then you should be able to agree a private sale of your house and thus save any agent's fee. Whether you enjoy this saving will depend upon the terms of your contract with the estate agent and the precise facts of the situation.If only one of you saves money on agent's fees by exchanging houses then the other will understandably want a share of the saving.

Drawing up contracts

Once the deal is agreed, you will both need to complete the usual information forms and supply your own lawyers with all necessary information to enable the conveyancing to proceed. Your lawyer will carry out the necessary searches and check the title of the house that you are buying. Your opposite number's lawyer will do the same for your house. A contract for the exchange of properties can either be a single document including all the terms of both transactions, or two separate documents, one for each house. If you have two contracts your lawyer must ensure that they are mutually dependent on each other, so that it is clear that either both transactions proceed to legal completion in the normal way, or neither do. Your lawyer must ensure that there are funds to pay off your existing mortgage. If you are obtaining a larger new mortgage to buy the new property, then that may be sufficient. If not then your lawyer will need any balance from you before the agreed completion date so your old mortgage can be repaid and the costs of the transaction covered. The other lawyer will need an undertaking from your lawyer to pay off your existing mortgage. Similar considerations will apply to the person whose home you are acquiring.

Tax hitch

After completion, you must send a Land Transaction Return to the Revenue and Customs Stamp Taxes Office providing details of the value of the house you have acquired. Previously, stamp duty was normally only payable on the amount of any balancing payment. If the difference in value of two exchanged properties was less than the lowest threshold for the payment of stamp duty, nothing was payable by either owner. However that all changed when the government introduced Stamp Duty Land Tax (SDLT) in 2003. Now, only limited categories of exchanges of property are exempt from SDLT. An exchange between private individuals is not one of them. You and the owner of the other house will each have to pay SDLT on the full value of the property acquired. The valuation that you obtained at the outset may also now have another use. If the value of your new house is close to one of the SDLT thresholds such as £120,000 or £250,000, then a valuation carried out at the beginning of the transaction will be a useful piece of evidence if Revenue and Customs seek to claim that your house is actually worth more than you say it is, and that you should be paying SDLT at a higher percentage rate.